Consolidation in the superannuation industry is starting to reach fever pitch, partly caused by the increased pressure from the Government on trustee boards to evaluate their chances of survival on a regular basis.
Stronger Super states clearly that among the key features of MySuper will be a duty for trustees to actively consider whether the fund has sufficient scale.
Unsurprisingly, the Conference of Major Superannuation Funds' (CMSF) session on fund mergers was packed as trustees and administrators wanted to get the insights as to how previous mergers were brought to a successful end.
But as the speakers slowly unfolded the myriad of aspects that could reduce the benefits of a merger to commercial insignificance, the question that came to mind was whether there were not better options available for efficiencies.
AMP Capital Investors human resources director Madeleine MacMahon quoted research at the session that suggested 60 to 80 per cent of mergers fail to deliver commercial outcomes due to lack of attention to people and cultural issues.
"You work on culture because it helps you deliver a commercial outcome," MacMahon said.
Cbus product development executive manager Sean Leonard also warned trustees that mergers are expensive, and urged anyone who planned to go down this route to make a strict budget.
He said the merger between Connect and Cbus costed about 2.1 basis points, and although it does not seem like a huge number, measured against the total funds under management of both funds, it is still a significant amount.
Practicalities aside, there is increasing criticism that questions whether efficiencies of scale are not overstated and what constitutes as sufficient scale.
Russell Actuarial senior consultant Tony Miller said that when you actually look at the numbers involved a more complex picture emerges than simply one of big being better.
"The results are not showing that big is better," he says. "When you look at fees and investment returns, for example, some of the smaller funds produced better results."
"There are some diseconomies of scale; as a big fund you can't access alpha in the same way as smaller funds can."
Miller did not deny that scale can bring cost efficiencies, but when making assumptions about a fund's optimal size trustees should use of a model that incorporates a wide range of factors, including future asset growth, membership growth, net investment performance and operating reserves.
Miller argued that for many funds there are good alternatives to a merger, including outsourcing operating functions like administration and arrangements to gain access to investment scale.
Earlier this month, Auscoal and Maritime Super announced to break off their merger talks as they had come to the conclusion that strategic alliances in clearing house facilities and financial advice would give them better outcomes.
Cbus' Leonard made a reference to their decision in his presentation, saying that despite Connect's successful merger, it made perfect sense to him that not all mergers form an improvement.
"A merger not proceeding is better than a bad merger," Leonard summarised.
Perhaps it would be a good idea to have some form of cooling-off period before the next wave of mergers will be announced.
